292 F.

2d 663

AUTOMOTIVE DEVICES CO.

v.
AUTOMOTIVE DEVICES CO. OF PENNSYLVANIA,
Appellant.
No. 13527.

United States Court of Appeals Third Circuit.

Argued May 5, 1961.
Decided June 12, 1961.

Charles M. Solomon, Philadelphia, Pa. (Leonard J. Schwartz,

Philadelphia, Pa., Fox, Rothschild, O'Brien & Frankel, Philadelphia, Pa.,
on the brief), for appellant.
Marurice J. Klein, Philadelphia, Pa. (Abrahams & Loewenstein,
Philadelphia, Pa., on the brief), for appellee.
Before GOODRICH, STALEY and FORMAN, Circuit Judges.
GOODRICH, Circuit Judge.

This case started out as a suit for breach of contract in which the plaintiff asked
both an injunction and damages. It represents what is evidently one bout in an
internecine warfare. The parties originally operated as one business enterprise.
Due to differences in policy they separated, forming a Massachusetts
corporation and a Pennsylvania corporation. The agreement between these two
corporations set up a division of territory in which each was to operate. We are
not concerned in this litigation with any problem concerning any illegal
restraint of trade arising out of this division.

The enterprise in which each is engaged consists of prrchasing used automobile

parts, rebuilding them and selling them as rebuilt parts to interested buyers. In
some cases where the customer asks for parts from new model cars the practice
is to purchase new parts from the manufacturer, repackage them and sell them
as rebuilt parts. The competitive phases of the business consist both in buying
the material to be rebuilt and then selling the rebuilt part at what is hoped to be

a profit.
3

At the trial of this case 1 the trial judge made findings of fact and conclusions of
law but denied the injunction asked for on the basis that no irreparable damage
had been shown. Then the plaintiff asked the court to let him withdraw his
claim for damages. This was the correct procedure because Rule 41,
F.R.Civ.P., 28 U.S.C.A., provides that after an answer has been filed or unless
all the parties stipulate an action may only be dismissed by order of court upon
terms and conditions. What the plaintiff sought was obvious. The trial judge
had made findings of fact in his favor and the plaintiff had the advantage of
what, in effect, was a favorable declaratory judgment. Nor, under these
circumstances, could the defendant appeal because the injunction had been
refused and if the claim for damages was withdrawn there was apparently no
basis for an appeal by defendant. But the trial judge refused to allow the claim
for damages to be withdrawn and entered judgment for $1.00 in favor of the
plaintiff. This gave the defendant his chance to appeal and the appeal was
timely made.

The parties have ignored the conflict of laws question, if any, in the case. We
do not know where the agreement, which is the foundation for the suit, was
entered into nor is there any suggestion as to what law is applicable. But this
being a diversity case we shall treat it as a Pennsylvania court would and go
ahead and apply the Pennsylvania law so far as it is applicable. The district
judge apparently did the same thing.

The center of the dispute here arises out of paragraph 5 of the contract between
the parties. The contract gave to each 'the exclusive right to do business' in
specified territories. The trial judge, deeming the phrase 'to do business' to be
ambiguous, heard testimony from witnesses and came to the conclusion that to
do business involved selling rebuilt parts but not buying parts to rebuild. He
also concluded that certain sales made by one party in the other's territory were
not to be included under the phrase 'to do business' because the transactions
were not profitable ones in the particular instances.2

We think there was error in both conclusions. We do not think the term is
ambiguous when applied to the nature of the business these parties did. As
already stated they had to buy used parts in order to rebuild them and the
buying was just as essential to the carrying on of the enterprise as was the
selling of the rebuilt product. And we find it incongruous to regard a
transaction which is a sale not a part of business because it did not result in a
profit.

We have in mind, of course, the injunction of Rule 52(a) concerning the duty of
appellate courts to accept findings of fact by the trial court unless they are
'clearly erroneous.' But we have many times pointed out that this injunction
does not apply to the conclusion reached from the facts found.3 The parole
evidence was an unnecessary complication in the interpretation of a contract
which was worked out by lawyers and, we think, had an obvious meaning when
applied to the business the parties did.

There was evidence that each one of these corporations bought used parts in the
territory allotted to the other. The argument is made that we should give the
interpretation to the contract which the parties by their own practices have
followed. That is quite all right when applied to a bilateral contract when the
parties act mutually and carry it out. But here there is nothing to show mutual
agreement upon this out-of-the-territory purchasing. We think the evidence
shows that each party was poaching in the territory of the other. The rule in
Pennsylvania and elsewhere is that when parties to a bilateral contract each
commit a material breach thereof the law will give relief to neither party.4 That
is the situation here.

The judgment of the district court will be reversed and the case remanded with
directions to enter judgment for the defendant.

Plaintiff sought a preliminary injunction. A hearing was held on this motion,

and by stipulation of the parties the testimony at that hearing and at two other
hearings were before the judge for a final determination of liability. At this
point the trial judge filed findings of fact and conclusions of law. Later he filed
supplemental conclusions of law on the issue of damages

The trial judge said 'sales forming part of an exchange or otherwise if made for
the purpose of securing supplies' were excluded from the phrase 'doing
business.'

See, e.g., Perfectform Corp. v. Perfect Brassiere Co., Inc., 3 Cir., 256 F.2d 736,
certiorari denied, 1958, 358 U.S. 919, 79 S.Ct. 287, 3 L.Ed.2d 238; In re Pioch,
3 Cir., 1956, 235 F.2d 903; Sears, Roebuck & Co. v. Johnson, 3 Cir., 1955, 219
F.2d 590

Butler Candy Co. v. Springfield Fire & Marine Inc. Co., 1929, 296 Pa. 552, 146
A. 135, 63 A.L.R. 504; Wetherstein v. Gordon, 1926, 287 Pa. 436, 135 A. 116;
8 P.L.E., Contracts 305 (1958); 6 Corbin, Contracts 1258(1951); 3 Williston,
Contracts 882 (rev.ed. 1936); Restatement, Contracts 274 (1932)